Practical Advice: Comparing Stamp and Equities Investing

Investing in stamps, or in any collectible for that matter, is very different from investing in stocks or mutual funds, and knowing how stamp investing differs from investing in equities is crucial to ensuring that the enterprise is a success.

First of all, stamps should not been seen as a replacement for other types of investments, but rather as a hedge or alternative investment - an area in which to allocate a portion of one's funds so as to diversify. As any seasoned investor knows, diversification is key to minimizing risk. Stamps held up very well during the the recent near-collapse of equities and real estate resulting from the sub-prime debacle, effectively demonstrating the value of diversifying ones holdings into a variety of areas of investing.

For the most part, philatelic investing is basically a form of international investing - a way to profit from economic growth and demographic trends affecting the stamp collecting populations of various countries. Accordingly, the most apt comparison one might make would be between stamps and stocks of foreign companies, or mutual funds which specialize in various types of international investing, specific regions, or specific countries.

Some of the important differences that exist between the two realms are as follows:

• Shares of a particular stock are more readily available for purchase than are examples of a particular stamp. A philatelic investor cannot call his broker and place an order for 1,000 Very Fine Never Hinged singles of a stamp that he feels is a "sleeper."

• Stocks are far more liquid than stamps, and trade at a set price, or set range of bid and ask prices, at any given time. Selling stamps requires greater effort, and a stamp's value may differ widely from market to market, or even from buyer to buyer. Often, there is only a sense of an approximate range of values for a given stamp.

• A corporation may choose to issue more shares of its stock, thereby diluting supply. Once issued, the supply of a stamp never increases, and is always either static or diminishing. The "known" supply of a particular stamp may increase, however, if there is a new find.

• Individual corporations are subject to circumstances which may destroy them or severely damage their prospects, regardless of the long-term outlook of the industries or economies of which they are a part. A corporation may decline or go bankrupt, rendering its shares worthless. due to the ineptitude or criminality of its directors, short- or medium-term changes in market conditions, governmental intervention, or a host of other hazards. A stamp may rise or fall in value, but it will never go bankrupt.

• A stock will increase in value if the underlying corporation experiences or foresees increases in earnings. An investment in a stock reflects a risk/reward analysis specific to the underlying company's prospects, with some attention paid to short- and medium-term conditions.

• A stamp will increase in value due to increased interest among collectors or investors. This is largely a function of changes in the basis of demand for the stamp - the collector population which is bidding for the available supply. As the size of the collector population within a particular country tends to grow with the country's middle class, an investment in that country's stamps represents a general and long-term investment in the country's future economic development.

• A stamp is a tangible collectible investment, so care must be taken to preserve it. A share of stock simply represents an investment in a company; assuming that one even possesses the actual certificate, it will be worth the same whether it is in perfect condition or not.

• The kinds of knowledge and expertise necessary to being a successful collectibles investor vs. a successful stock investor differ widely. While both require comprehensiveness and depth of analysis of prospective investments, the knowledge of the demand-base, collectors vs. consumers, takes on a very different character. The stamp collecting cohort is largely comprised of Renaissance Men (and Women): well-educated, intelligent, and open-minded. Furthermore, there is an undefined continuum between those who are purely hobbyists and those who are interested in the financial aspects of philately- collectors who sell stamps and use the profits to upgrade their collections, vest-pocket dealers, investors, etc.. The successful stamp investor must have a kind of empathy with all types of collectors- an identification with them, in fact- because he is, in truth, a part of this continuum.